The Future of Children, Princeton - Brookings: Providing research and analysis to promote effective policies and programs for children.

Welfare reform has sparked stronger political support for child care and early education, primarily to enable mothers to work.⁵⁰ For the more than two million parents currently on the welfare rolls to find and hold down jobs, new child care providers must be found or current caregivers must become available for more hours each week. Over half the children in welfare families were under age six, and another third were in elementary school in 1999. To meet the rising demand for care, federal and state governments have attempted to expand access to various child care options in low-income communities by increasing the availability of vouchers or by making direct institutional efforts to strengthen center supply. Although significant progress has been made in expanding subsidies, take-up rates remain low and the supply of quality options uneven.

Since enactment of the child care block grant in 1990, federal policymakers have banked heavily on a demand-side strategy, based on the idea that use of child care vouchers will effectively raise low-income families' purchasing power and spur the market to strengthen the child care infrastructure in poor neighborhoods. As a result of increased funding and expanded eligibility rules, the number of children receiving child care subsidies under the CCDF and predecessor programs has grown by about 28%, from approximately 1.4 million in 1995 to nearly 1.8 million by 1999.⁵¹ Still, subsidy utilization rates remain under one-quarter of all eligible parents, and are highly variable across states and local areas.⁵² For example, although subsidy utilization rates are under one-quarter in many large urban counties such as Los Angeles, other counties have moved aggressively to raise rates: in San Francisco County, subsidy use now exceeds two-thirds of all eligible families.⁵³ (See Appendix 2 at the end of this article for a listing of CCDF utilization rates, by state, in 1999.)

In devising strategies to bolster subsidy take-up rates, it is important to remember that the child care market is affected by both demand-side and supply-side factors. Parents respond to policy rules and incentives in expressing their demand for particular child care providers. At the same time, parents live or work in neighborhoods with variable populations of organizations and individuals who provide care. In contrast to the demand-side strategy of bolstering parents' purchasing power, there is also the older, alternative strategy involving direct public financing of new or expanded child care centers and preschools—a supply-side approach. Supply-side financing was how federal policymakers originally supported child care programs during World War II. Other examples of this institution-building approach include Head Start and state-funded preschools.

Both demand- and supply-side strategies, if effectively implemented, can help to expand the range of child care options in low-income communities and improve the quality of care. Key factors to consider in improving these strategies include states' eligibility criteria, copayment policies, reimbursement rates, links to center-based care, and local neighborhood contexts, as discussed below.

Income Eligibility and Copayments

The 1996 law increased states' authority to establish eligibility criteria for child care subsidies, and raised the allowable family income limit to qualify for a subsidy from 75% to 85% of the state median income. As a result, states' income limits vary widely. By 1999, nine states had raised eligibility to the new federal maximum of 85% of the state median income. On the other hand, Missouri and Wyoming decided that families with incomes up to only 42% of the state median should be eligible. Urban Institute researchers found that states raised their monthly income eligibility standard by $130, on average, after passage of the 1996 reforms.⁵⁴

At the same time, eligibility does not guarantee utilization. States require most subsidized families to pay a portion of the monthly costs of child care, or copayment, ranging from $10 to $100 or more. From a state's perspective, copayments can stretch available child care funding so that more families can receive subsidies. But from a family's perspective, the copayment may discourage both subsidy use and employment. ⁵⁵ In addition, the administrative process for getting and retaining subsidies, involving in-person visits and extensive paperwork, can be discouraging for working poor families who may risk losing their jobs if they take time off to meet these bureaucratic demands.⁵⁶

Reimbursement Rates

Under the federal welfare reform law, states may now reimburse child care providers (organizations and individuals) above the 75th percentile of local market rates, previously the cap for welfare-related child care subsidies. About 30 states are continuing to use the 75th percentile to set their rates, whereas others are using their discretion to either raise or lower rates. For example, most California counties reimburse providers at about the 90th percentile of local market rates. In contrast, Massachusetts now sets its rate at the 55th percentile. Reimbursements are constrained both by setting rates at lower percentiles and by basing payments on old market rate surveys.⁵⁵

Lower reimbursement rates allow states to provide subsidies to more families, but can make it difficult for families to find care, as fewer providers can afford to accept the lower rates. Moreover, if a provider accepts the lower rate, the quality of care offered may be undercut, as providers rely on lower paid, less well-educated staff, or skimp on learning-related supplies. Lower reimbursement rates also discourage both individuals and organizations from entering the provider market. As an incentive to improve both quality and access to care, an increasing number of states are experimenting with tiered reimbursements rates, paying higher rates to centers that are accredited, or to providers who address special needs (such as infant or odd-hour care) or attend training or seek certification.⁵⁷

Links between Subsidy Use and Center-Based Care

A high correlation between use of subsidies and enrollment in center-based care has persisted since long before the 1996 reforms. The inverse also is true: Families who rely on informal arrangements have been far less likely to draw financial aid for this care. Because center care often is more costly, it is understandable that families wishing to use centers would be most likely to seek out a subsidy, but institutional factors may be contributing to this pattern. The high use of subsidies for center care in some states and local areas is rooted in longstanding contracting policies that secure a set number of center-based slots for children. The subsidy–center linkage also may be partly due to the way information about subsidies is communicated and how center slots continue to be allocated.

Following the 1996 reforms, federal regulations required that parents eligible for assistance under the CCDF be given a choice of receiving a voucher or enrolling their child in a state-funded facility. Nationwide, use of vouchers is certainly the most widely used option. In 1999, 83% of children subsidized by the CCDF were provided vouchers. Only 11% were using a state-funded center or family child care home, and the remaining 6% received a direct cash subsidy.⁵¹ However, use of state-funded facilities is much higher in some states. For example, among the 23 states using CCDF grants and contracts to fund facilities, the percentage of children using these facilities ranged from only 1% in states such as Colorado, Indiana, New Mexico, and Vermont to a high of 73% in Florida.

By using subsidy dollars for grants and contracts with selected centers and securing a stable number of slots, welfare agencies can support the basic infrastructure at these sites, exert greater influence to promote quality caregiving, and encourage these centers to expand. But tying substantial portions of subsidy funds to centers may deter the use of subsidies by families who prefer different types of care, and may deprive other providers of monetary incentives necessary to remain in the field.

Even with respect to vouchers, in many welfare offices throughout the country, it has been a tacit belief among clients and caseworkers alike that child care aid goes only for center-based programs. Researchers have found that when a caseworker asks, "Do you need day care?", many welfare mothers take this to mean, "Do you want to place your child in a center or preschool?" The conversation sometimes ends there, without the caseworker explaining that a voucher could reimburse kith or kin members for child care services.⁵⁸ Since reform, however, use of vouchers for kith and kin providers has been growing.

Local Neighborhood Conditions

Before the mid-1990s, child care researchers rarely focused on neighborhood contexts, particularly the many small-scale child care organizations created over the past 40 years. Now, as government agencies escalate efforts to help parents move from welfare to work, state and federal officials are discovering a territory densely populated by privately funded centers and nonprofit programs run by community-based organizations and local schools.

Recent data from the Census Bureau reveals the steady growth in the number of formal centers and family child care homes since 1982, as depicted in Figure 5. However, nationwide data from a recent study by the Children's Foundation suggests that licensed centers' capacity grew only between 2% and 3% per year during the late 1990s, not enough to keep pace with child population growth in major urban areas.⁵⁹ Moreover, neither study focused on organizational growth in low-income neighborhoods.

To begin taking stock of child care provider markets at the local level—the contexts in which welfare and working poor parents must make decisions—local child care agencies in many states now conduct a census of centers and family child care homes, tracking how many are in operation and how many children they are licensed to serve. A few states collect data on actual child enrollments. These organization-level data allow researchers to identify different levels of access to child care options across diverse zip codes or census tracts. A recent analysis of such data in California, for example, revealed some progress between 1996 and 2000: Capacity growth was higher overall in zip codes that had a relatively low supply at the beginning of the four-year period, indicating that these communities are slowly catching up with high-supply communities. Although center capacity was relatively high in the poorest zip codes, it declined in working poor and lower middle-class communities and areas with higher concentrations of Latino families, before rising sharply again in affluent zip codes.⁶⁰

In California, licensing data from the state welfare agency show that centers' enrollment capacity grew by 2.5% annually in the three years following passage of the state's welfare reform bill in 1997, nearly one full percentage point behind the 3.4% annual growth rate in the state's child population.²¹ Similar slow rates of center growth have been found in Illinois and Maryland. ⁶¹ In addition, the number of new centers granted licenses grew at about two-thirds of the center-growth rate, indicating that much of the expansion was through new slots within existing centers rather than entry of new organizations. Adding slots to existing centers does little to expand capacity for many working-class communities and new immigrant communities because the number of existing centers is acutely low in those communities.

Moreover, the quality of center-based programs also depends on state and local conditions. In some low-income communities, public investment targeted on carefully regulated centers and preschools has effectively sustained programs of reasonably strong quality, at least with respect to structural factors. In other neighborhoods where infrastructure is weak, financial incentives have been insufficient to sustain higher quality centers. The mix of centers and preschools run by school districts, nongovernment organizations, and for-profit firms also affects average quality levels, especially when centers operate under weak state regulation. The GUP Project, for instance, has detailed the ample supply of low-quality centers in Florida. Beyond efforts to increase subsidy take-up rates, states may need to address the political and economic forces that surround neighborhood populations of child care organizations to simultaneously bolster supply and improve the quality of care.

In sum, federal and state governments have significantly increased spending on child care and preschools for low-income families since 1996. Use of vouchers for kith and kin providers has grown rapidly, and the supply of centers and family child care homes in major urban states is struggling to keep pace with child population growth. The constraints on center supply may be limiting parental choice and pushing families toward kith and kin caregivers. The supply of quality care options is uneven, especially in poor and middle-income communities, and the number of providers entering the child care market may be tapering off due to flagging subsidy take-up rates and the low reimbursement rates set by some states. Stronger efforts to expand high-quality child care options for low-income families will be needed to achieve the tandem goals of child care: enabling mothers to work and enhancing the development of children.